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EMPLOYERS' MUTUAL INDEMNITY ASSOCIATION LIMITED v FC of T

Members: Sheppard J
Burchett J

Gummow J

Tribunal:
Full Federal Court

Decision date: Judgment handed down 2 October 1991

Gummow J

This is an appeal from the decision of a Judge of this Court ( Hill J.). His Honour allowed an appeal brought on a question of law under s. 44 of the Administrative Appeals Tribunal Act 1975 (``the AAT Act'') against the decision of the Administrative Appeals Tribunal (``the AAT''). The AAT had allowed in part the objections of Employers' Mutual Indemnity Association Limited (``the taxpayer'') to assessments by the Commissioner of Taxation (``the Commissioner'') for the years of income ending 30 June 1985, 1986 and 1987, and reduced the taxable income of the taxpayer for those years by $21,985, $402,713 and $487,772 respectively. The decision of the AAT is reported, Case W105,
89 ATC 839 , as is that of Hill J.,
F.C. of T. v. Employers' Mutual Indemnity Association Ltd. 90 ATC 4787 . The taxpayer, having been partially successful before the AAT, was unsuccessful before Hill J. and now appeals to this court. The question for us is whether the appellant has demonstrated error by the primary Judge in his decision that the AAT had erred in law when it reached its conclusions favourable to the taxpayer.

The amounts by which the assessments of the taxpayer were reduced by the AAT represented the tax on profits derived by the taxpayer from the sale of certain shares which had been held in what was described as the General Fund of the taxpayer. The taxpayer contended the General Fund was an investment fund, not a ``reserve fund'' maintained to meet claims arising from its insurance business.

The AAT found the profits not to be assessable income of the taxpayer under sub-s. 25(1) of the Income Tax Assessment Act 1936 (``the Act''). It is that conclusion which was successfully disputed by the Commissioner before Hill J.

The taxpayer was incorporated in 1914 under the Companies Act 1899 (N.S.W.), as a company limited by guarantee. It had as its primary object the conduct of the business of

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insurance and its Memorandum and Articles of Association were so designed as to enable members who were employers to conduct mutual insurance and to return to members any surplus arising from those mutual insurance activities, as a rebate from standard tariff premiums.

Initially, the business of the taxpayer comprised only workers' compensation and public liability insurance. It wrote motor vehicle comprehensive insurance and third party insurance from 1933. However, in 1980 the taxpayer discontinued third party motor vehicle loss insurance and in 1982 it ceased writing comprehensive motor vehicle insurance. Both workers' compensation insurance and public liability insurance are essentially ``long tailed insurance''. That expression identifies the circumstance that claims under policies may not be made, or the quantification of those claims may not occur, for considerable periods of time after the year of payment of the policy premium. Accordingly, it is necessary to provide for these liabilities using an actuarial basis of calculation.

The taxpayer is authorised under the provisions of the Insurance Act 1973 (``the Insurance Act'') to carry on insurance business. The authority in that behalf granted to the taxpayer is subject to various conditions specified in sub-s. 29(1) of the Insurance Act. One such condition is that the value of the taxpayer's assets at all times shall exceed the amount of its liabilities, by not less than the greater of $1m or 20% of the premium income of the taxpayer during its last preceding financial year. Paragraph 29(1)(b) so provides and this condition is described as the requirement for a ``solvency margin''. Further, the taxpayer is obliged by sub-s. 31(2) of the Insurance Act to ``make in its accounts provision in respect of liabilities''. Part IV of the Insurance Act imposes particular requirements as to the keeping of accounting records by authorised insurers and as to the lodgment with the Insurance Commissioner of accounts and statements. The Insurance Commissioner is to be provided with a copy of the Articles of Association of authorised insurers in their current form: para. 22(3)(b), para. 29(1)(e).

An understanding of the constitution of the taxpayer is important for the purposes of this appeal. In their original form, the Articles of Association provided for a division of membership into three sections, but in 1945 they were amended so as to merge the B Section into the A Section. The result was that in the relevant years of income, there were only two sections referred to as the A Section and the C Section.

Members were allocated between the different sections having regard to the industry in which they were engaged and to the risks associated with that industry. This assisted the allocation between participating members of surpluses connected with the risks (in the technical sense) associated with a particular industry.

The Articles of Association of the taxpayer provided for the business of the taxpayer to be managed in two sections with a committee for each section (elected by the members of that section). Each committee was empowered to determine the different classes of insurance to be undertaken by its section and to fix the basis and rate of the applicable premium. The taxpayer had three directors, one being Chairman of the A Committee, and the other of the B Committee, and the third being elected at the Annual General Meeting.

The taxpayer was authorised to operate what were called ``general banking accounts'' under the control of the directors. However, each section was authorised by Articles 99 and 100 to maintain a separate bank account under the control of its committee. Further, the committee of each section was authorised by Article 97 to receive, control and deal with all income and receipts arising out of the business of that section, and the profits of each section were divisible between the members of the section in such proportions as the committee determined (Article 95).

Article 98 was of central importance. Its effect was that (i) all claims and the expenses of the management of each section were to be paid in the first place out of the current year's income and receipts of that section and (ii) any deficiency was to be made good out of the Reserve Account of the section in question. Thus, the source and nature of the Reserve Account of each section were significant matters.

In order to appreciate the source and nature of the Reserve Accounts, it is necessary first to

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return to the provisions dealing with the general banking accounts. Article 104 is an important provision. It states:

``104. At the end of each year all moneys over and above such as are required to discharge the liabilities of the section at such time and which the Committee of the Section intend to distribute by way of rebates to members shall be credited to the General Fund of the Company. In the event of additional moneys at any time being required in the General Fund in order that the Company may have therein sufficient money to fulfill its legal obligations the A and C Committees shall pay to the General Fund such moneys as they shall respectively be called on so to do by the Directors of the Company in anticipation of what may be due to be paid over at the end of the then current year.''

It will be necessary to refer further to the phrase in this Article, ``required to discharge the liabilities of the section''. The ``General Fund of the Company'' is identified in Article 102:

``102. All moneys paid into or standing in the General Banking Accounts may be drawn out and invested in such manner and upon such securities as the Directors may determine and the moneys represented by such investments together with the amounts standing to the credit of such General Banking Accounts shall be called the General Fund of the Company.''

In the fourth quarter of each financial year, after the accounts for the third quarter had become available, there were meetings of each section committee, where a determination was made of the amount of rebate of premiums, in relation to each class of under-writing business, which would be allowed to members before the close of the financial year in question. The determinations would be reached upon the known results and those projected for the remaining quarter of the year. The rebates were provided for in the annual accounts of each section and deducted from the renewal premiums payable by members for the next financial year; policy holders who did not renew and who thereby ceased to be members received their rebates in cash. Then, provision was made for the expected future cost of all known claims and, based on experience, for the estimated cost of unreported claims or contingencies for policies written in the year in question. These provisions were in respect of what are considered ``unreported claims'' and ``outstanding claims'', terms which I will consider later in these reasons. Provision was made for income tax. Any surplus remaining was then paid into the General Fund of the Company. In my view, this surplus represented the moneys over and above what was required to discharge ``the liabilities of the section... at such time'', within the meaning of Article 104. I will return to this point.

The Reserve Accounts are dealt with as follows in Articles 105 and 106:

``105. The Secretary of the Company shall in the books of the Company keep separate accounts one for each section and each such account shall show the amount of money contributed and withdrawn to or from the General Fund by each section and the Account of the A Section in such books shall be called the A Reserve Account and the Account of the C Section in such books shall be called the C Reserve Account.

106. Each section shall be entitled to a refund from time to time from the General Fund of such sum or sums of money as may be required to make up any deficiency as aforesaid but the total amount of such sum or sums so required as aforesaid from the General Fund shall not exceed the amount standing to the credit of each section's Reserve Account.''

Interest and dividends derived from the General Fund, net of the general expenses of the taxpayer, were allocated to the sections in proportion to the respective credit balances of each section at the start of the financial year; this was as required by Article 108. It read:

``108. The interest and income of the Company derived from its General Fund after debiting the general expenses of the Company not payable by the sections respectively shall immediately prior to the end of each year be paid to the credit of the Reserve Accounts of the respective sections in proportion to the respective credit balances in the Reserve Accounts of the sections at the commencement of such year.''

As will appear, Article 108 is of great significance when linked to Article 98, because

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the result of these provisions is that moneys derived from the investments in the General Fund may provide a source for the payment of claims.

Article 109 provided that income tax assessed against the Company be paid out of the General Fund of the Company and be debited to the Reserve Accounts of the A and C Section accounts respectively, in proportion to the taxable income of each of the sections.

Article 110 obliged the committees of each section to cause to be kept true accounts of the sums of money received and expended by the section and of matters in respect of which such receipt and expenditure occurred, and of the assets, credits and liabilities of each section. Article 111 obliged the directors of the taxpayer, except as to the accounts otherwise provided for, to cause the Company to keep true accounts.

The AAT found that for some 25 years before 1974 both sections always returned a profit. In 1980 and 1982, Section A returned an operating loss of $81,999 and $1,159,509 respectively. In the ten years from 1979 to 1988, the C Section reported operating profits which ranged between $10,554 in 1984 and $220,056 in 1982.

It is possible now to come to the immediate point of the present litigation. Moneys held in the section accounts, being the surplus to immediate needs were invested. Any profits made or losses suffered on the sale or realisation of assets retained in these section accounts were of an income nature and were included in the assessable income of the taxpayer or were allowed as deductions, as the case might be. No dispute arises as to the section accounts. The AAT accepted that where a section realised a surplus or suffered a loss, the profit or loss, as the case might be, was brought into account as assessable income or a deductible loss.

This was not so with the General Fund. For many years before 1980 the General Fund was placed by the taxpayer in fixed interest investments or preference shares. From the late 1970s, increasingly significant investments were made in ordinary shares. As I have indicated, the Commissioner assessed the taxpayer for the 1985, 1986 and 1987 income years on the profits arising from the sale of such shares.

The taxpayer submits that:

  • (i) not all profits of a company carrying on the business of insurance will be taken into account in determining its assessable income,
  • (ii) the profits on the sale of investments held by an insurance company will be assessable income where the investments constituted the necessary reserve fund available to meet claims and expenses in all reasonably foreseeable contingencies,
  • (iii) where, as the taxpayer says was so in the present case, the insurer maintains two separate funds, the first as a reserve fund which is demonstrably sufficient to meet all claims and expenses in all reasonably foreseeable contingencies, and the second as an investment fund, the profits arising in respect of the sale of assets in the investment fund will not, automatically, be assessable income,
  • (iv) whether such profits are assessable income will depend upon the considerations discussed in
    London Australia Investment Company Limited v. F.C. of T. 77 ATC 4398 ; (1976-1977) 138 CLR 106 .

For the above propositions, the taxpayer relied in particular upon a passage in the judgment of the Full Court in
The Chamber of Manufactures Insurance Ltd v. F.C. of T. 84 ATC 4315 ; (1984) 2 FCR 455 . There, the taxpayer, a general insurance company, held a portfolio of shares and securities as a reserve fund available to meet claims and expenses in all reasonably foreseeable contingencies; the taxpayer failed in its submission that profits from sales of shares and securities were not income according to general concepts. However, the Full Court said (at ATC 4318-4319; CLR 460):

``Even in a case such as the present, the position might have been different had the taxpayer maintained two quite separate funds - the first acknowledged as a reserve fund and demonstrably sufficient to meet claims and expenses in all reasonably foreseeable contingencies - the second categorised and dealt with as an investment fund. Whether profits from the sale of investments in the second fund were taxable would depend upon factors unrelated to

ATC 4861

insurance such as those referred to in the London Australia Investment Co case.''

The hypothesis upon which this passage rests is that, absent the separation between the two funds, the profits from the sale of assets in the second fund would be earned in the course of the taxpayer's insurance business or with a sufficient connection to that business, so as to attract sub-s. 25(1) of the Act, and that if there were such separation between the funds, that nexus might be missing. See also Colonial Mutual Life Assurance Society Limited v. F.C. of T. (1946) 8 ATD 137 at 143; (1946) 73 CLR 604 at 617-618.

As Hill J. pointed out, in the Chamber of Manufactures Insurance case the taxpayer failed because it was unable to show that it maintained two separate funds. After referring to the structure of the Memorandum and Articles of Association of the taxpayer, his Honour said that in the instant case there was ``a documentary division of funds''. But he continued [at 90 ATC 4787 at 4800]:

``The question is whether the evidence justifies the conclusion that the section funds (seen as one fund for this purpose) were acknowledged by the [taxpayer] as the reserve fund of the [taxpayer] and, if it be a separate matter, whether they were `demonstrably sufficient to meet claims and expenses in all reasonably foreseeable contingencies' .''

(emphasis added)

Counsel for the taxpayer submitted to us that the opening words of this sentence evinced a wrong approach by his Honour to the issue on an ``appeal'' under s. 44 of the AAT Act. It will be necessary to return to this submission. But it should be noted that the AAT held that insofar as it could be done within the structure of a single legal entity, ``a clearly defined line of demarcation was established between the management of, and the investments of, the General Fund and of the sections'' and that the taxpayer was not to be held liable ``only for lack of any such clear distinction between its trading insurance investments and its capital investments''.

On the ``appeal'' from the AAT, the primary Judge concluded that it was difficult to see the General Fund as being other than a part of the ordinary insurance reserves of the taxpayer. That conclusion made it unnecessary for his Honour to consider the Commissioner's second submission namely that the taxpayer had carried on a separate investment business in the sense discussed in the London Australia Investment case.

The crucial passage in his Honour's reasoning is as follows [at 4801]:

``[W]here the [taxpayer's] own experience has shown need to resort to the assets of the general fund and where the statutory requirement suggests a reserve fund greater than the section funds needed to be maintained, it is difficult, particularly in the light of the articles of association to see the general fund in this case as being other than a part of the ordinary insurance reserves of the [taxpayer], the investment of which (pending the need to resort to them to meet claims) is part of the ordinary insurance business of the [taxpayer]. There is, in my view, a sufficient nexus between the realisation of the assets by the [taxpayer] and its insurance business to require the conclusion that the net profits from realisation are income in ordinary concepts.''

Before us, counsel for the appellant, the taxpayer, criticised the formulation of the holding in the last sentence of that extract. He submitted that the question for the primary Judge was whether or not the AAT had erred in law in concluding that the net profits in question were not income in ordinary concepts. As I have indicated, on this and other points, it was submitted for the taxpayer that, insofar as the AAT had reached conclusions of fact, and the appeal under s. 44 of the AAT Act to the primary Judge had been restricted to questions of law, the question for his Honour had been whether or not the material before the AAT had reasonably admitted of the factual conclusions reached by it. Further, the order made by the primary Judge was solely that ``The appeal be allowed'' and counsel for the taxpayer also submitted that this was an inapt method of disposing of a proceeding under s. 44 of the AAT Act.

It will be apparent from the passage I have set out above that in reaching his conclusion his Honour had particular regard to three matters. First, to a finding that in fact the taxpayer had needed to resort to the assets of the General Fund, secondly, to the construction he placed upon the effect of the statutory requirements,

ATC 4862

and thirdly, to the effect of the Articles of Association.

There was also a question of the significance to be attached to the evidence as to the subjective intention of the Directors. This evidence was that the General Fund was not seen by them as a reserve fund because all reasonable contingencies had been provided for by the section funds. His Honour held that whatever significance might be placed upon evidence of subjective intention in other cases, in the present case that evidence occupied a subordinate place in the determination of the question whether the assets in the General Fund were part of the taxpayer's ordinary insurance reserve. This was because, in his Honour's view, the evidence as to subjective intention was not wholly consistent with the third matter to which he referred, the legal framework erected by the Articles of Association.

I will deal with the first two of these three matters and then return to consider the effect of the Articles of Association.

The primary Judge described as a ``factor of considerable significance'' the circumstance that not only did the Articles of Association ``envisage the possibility of there being claims against the General Fund by each of the sections, but also as a matter of fact such a claim was made in the 1980 year''. However, the evidence on the point before the AAT was unchallenged and to the contrary. In 1980, the A Section sustained a small loss but the C Section made a larger profit. Moneys were taken from the C Section and put into the General Fund and a smaller sum was then transferred from the General Fund to make up the Section A loss. The surplus in the C Section was greater than the loss in the A Section, so that there was a balance remaining to augment the General Fund. Further, the oral evidence of a witness who was accepted by the AAT had been that the events of 1980 were ``perhaps one occasion in 80 years''. If it matters, 1980 was 5 years before the first of the relevant years of income. There was a loss in the A Section in the 1982 year but apparently no need arose actually to make any transfer from the General Fund. His Honour used the word ``claim'' to describe the transfer effected in the 1980 year, and then, upon the false basis as I have now described it, went on to say [at 4801]:

``This raises an issue whether the section funds, if seen together as the reserve fund, were `demonstrably sufficient' to meet claims and expenses in all reasonably foreseeable contingencies.''

(emphasis added)

The phrase ``demonstrably sufficient'' is taken from the passage I have set out earlier from the judgment in the Chamber of Manufactures Insurance case, supra at ATC 4318; FCR 460.

That brings me to the second of the three matters, namely the requirements for compliance by the taxpayer with the provisions of the Insurance Act, particularly s. 29. The primary Judge said it was not in dispute that the assets in the Section Funds standing alone would not have satisfied the solvency margin, and that in calculating it the assets in the General Fund also had been taken into account. The primary Judge continued by saying that whilst the requirements of the Insurance Commissioner were not determinative, and it would be open to a taxpayer to call expert evidence to show that the statutory requirements were excessive, nevertheless the statutory requirement suggested a need to maintain a reserve fund greater than the Section Funds.

On the appeal it was submitted for the taxpayer that whilst the General Fund was taken into account for the purposes of satisfaction of the requirements of s. 29, that did not of itself indicate it was designed to provide a reserve available to meet claims.

Those submissions should be accepted. The Insurance Act required the taxpayer to observe the solvency margin and to that end the General Fund was taken into account. The observance of this condition was a stipulation of the taxpayer retaining its authorisation under that statute. But it does not follow that this ``buffer'' is necessary ``to meet claims and expenses in all reasonably foreseeable contingencies'' within the sense of the crucial passage in the Chamber of Manufactures Insurance case, supra. The ``buffer'' has as its evident purpose the provision of a safeguard against extraordinary events which were not reasonably foreseeable and in respect of which provision was to be made as for contingent liabilities. The requirement of para. 29(1)(b) for the solvency margin is quite distinct from

ATC 4863

that in sub-s. 31(2) as to the making in the accounts of provision in respect of liabilities.

On the other hand, whilst I do not accept the significance given it by the primary Judge, the need to observe the requirements of the Insurance Act and the part played by the General Fund in enabling the taxpayer to do so, are still of importance in appreciating the nature of the taxpayer's business.

The Articles (notably in Article 104) as well as the Insurance Act, speak of ``liabilities''. It was submitted that the phrase in Article 104 ``required to discharge the liabilities of the section... at such time'' referred to actual liabilities. The result, adverse to the taxpayer's submissions, was said to be that moneys might be carried over to the General Fund whilst inadequate provision had been made for liabilities in respect of claims. In my view, the phrase like that in sub-s. 31(2) of the Insurance Act is not to be given so narrow a reading.

The practice of insurance companies is to bring into their accounts as allowable outgoings, ``claims paid'' and ``claims outstanding''. The former are claims which arose and were paid in the year of income; the latter are claims of which the insurer has had notice but which have not in fact been paid, so that an estimate has had to be made of what was required to be paid:
R.A.C.V. Insurance Pty Ltd v. F.C. of T. 74 ATC 4169 at 4172-4173. See also
Insurance Commissioner v. Associated Dominions Assurance Society Pty Ltd (1953) 89 CLR 78 at 97-98 ; In
re Capital Annuities Ltd [1979] 1 WLR 170 at 185 . I have already referred to the evidence which was accepted. It was to the effect that the calculation of moneys to be credited to the General Fund Pursuant to Article 104 was made after making provision for the estimated cost of outstanding claims, unreported claims and contingencies. Unreported claims, as distinct from outstanding claims, describe those cases where events have occurred giving rise to a claim but no claim or report has been made of the occurrence of those events.

In accordance with the above practice, the ``liabilities'' of each section, referred to in Article 104, include those in respect of claims outstanding and unreported claims.

In dealing with issues arising from the construction of the Articles of Association, the primary Judge said [at 4800]:

``First, the computation of the amount to be contributed by a section fund to the General Fund (and a fortiori the amount to be retained in the section fund) proceeds upon the basis that it is only liabilities existing at the date of calculation that are provided for. By inference, contingent liabilities may not be. This is of little significance in itself. Of far greater significance, however, is the mechanism which the Articles provide for claims to be made against the General Fund to provide for an excess of liabilities in the section funds.''

It follows from what I have said that I would not agree with what is there said as to the treatment of contingent liabilities. But there remains the ``mechanism'' to which the primary Judge referred. In my view, whilst the Articles do not contemplate claims being met in any direct sense from the General Fund itself, the interest and other receipts yielded by the investments comprising the General Fund may provide a source from which claims are met.

After stating that it was arguable that on its proper construction Article 104 meant that future liabilities, which might merely be contingent, need not be provided for, his Honour continued [at 4793]:

``But whether or not the article is to be so construed, the framework of the articles contemplates that the moneys in the general fund and the investments representing those moneys, will be available to meet the insurance commitments of the [taxpayer]. While it is true, as Art. 98 makes clear, that claims are to be paid out of current year's income, where that is inadequate (i.e. where there is a deficiency) that deficiency is to be made good out of the reserve account. That reserve account includes, as Art. 105 provides, that contribution made to the general fund as well as the proportionate share of the interest and income derived from the investments in the general fund (Art. 108).''

His Honour also referred to evidence from the taxpayer [at 4794-4795]:

``[t]hat a useful by-product of the investment of surpluses in the General Fund was the earning of income for the sections, that income permitting a reduction of premiums or the provision of rebates for the benefit of members and that part of the

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purpose of the investment in General Fund was to earn income on the investments for the purpose of reducing premiums or providing rebates... [T]he investments representing the General Fund were a source of funds should it turn out that the calculations of liabilities made by each Section Committee were inadequate as well and in the meantime... producing income which could be used to reduce premiums or increase rebates to members.''

The question then is whether in the light of this mechanism provided for in the Articles and the evidence to which his Honour referred, it is correct to conclude that there was a sufficient nexus between the realisation by the taxpayer of the assets in question and its insurance business to support the conclusion that as a matter of law the AAT should have reached the conclusion that the net profits from the realisation were derived as a normal step in carrying on the insurance business or were otherwise sufficiently connected with that business, and thus were income of the taxpayer according to ordinary concepts; see the authorities collected by Pincus J. in
F.C. of T. v. Equitable Life and General Insurance Co. Ltd ; Equitable Life and General Insurance Co. Ltd. v. F.C. of T. 90 ATC 4438 at 4456 . (The Full Court was divided as to the result in that case and Pincus J. dissented, but that is not of present significance.)

In stating the issue in that way, it is to be borne in mind that, in my view, only some of the considerations relied upon by his Honour in truth do favour the Commissioner by indicating such a sufficient nexus. But the matters to which I have referred are still sufficient to deny the primary proposition, sought to be made good by the taxpayer, that within the meaning of the passage in the Chamber of Manufactures Insurance case, supra at ATC 4318; FCR 460, the taxpayer maintained ``two quite separate funds''.

Profits derived from the sale of investments ordinarily are brought to account in the assessment of the income of an insurance company.
F. C. of T. v. Cooling 90 ATC 4472 at 4480 ;
R.A.C. Insurance Pty Ltd v. F.C. of T. 90 ATC 4737 at 4741 . The maintenance of the solvency margin was essential if the taxpayer was to observe the conditions laid down by the Parliament for its authorisation to conduct an insurance business. The assets in the General Fund were brought into account in computing that solvency margin. Article 108 required that the receipts derived from the General Fund, after debiting the general expenses of the taxpayer which were not payable by the sections, be paid to the credit of the Reserve Accounts of the sections. In the case of a deficiency in the current year's income and receipts of a section, the deficiency in meeting claims would be made good out of the Reserve Account of that section (Article 98). The maintenance and enlargement of the General Fund was an activity sufficiently closely connected with the insurance business conducted by the taxpayer to conclude that the net profits from realisation of the assets in that General Fund were income of the taxpayer according to ordinary concepts.

In his reasons for judgment, Burchett J. sets out a passage from the judgment of Kitto J. in
National Bank of Australasia Ltd v. F.C. of T. 69 ATC 4042 at 4048; (1968-1969) 118 CLR 529 at 538-539 , which is particularly in point.

It follows from this conclusion that, like the primary Judge, I do not find it necessary to consider the further submission that the operation by the taxpayer of the General Fund amounted to the conduct of a separate investment business.

I agree with the primary Judge that the AAT fell into an error of law in deciding that the determinations by the Commissioner upon the objections under review in respect of the years of income ended 30 June 1985, 1986 and 1987, should be varied to reduce the taxable income of the taxpayer by $21,985, $402,713 and $487,772, respectively. However, as I have indicated, the primary Judge, in accordance with the Notice of Appeal which was before him, dealt with the matter by ordering that the appeal from the AAT be allowed, without any further specification as to the treatment of the objections under review.

The appropriate orders in this Court should be as follows:

  • (1) Order that the appeal from the orders made by Hill J. on 31 August 1990 be dismissed.
  • (2) Order that, in addition to those orders:
    • (a) there be set aside the decision of the AAT that the determination of the

      ATC 4865

      respondent upon the objections under review be varied to reduce the taxable income of the appellant by $21,985, $402,713 and $487,772 in the years of income ended 30 June 1985, 1986 and 1987 respectively, and
    • (b) there be affirmed the said decisions under review by the AAT.
  • (3) Order that the appellant pay the costs of the appeal to the Full Court.


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